Bengaluru, India – Intel’s shares experienced a notable decrease of nearly 7% on Wednesday following reports of mounting losses within its contract chip-making division. The company’s struggles have raised concerns about its ability to compete with leading rival Taiwan Semiconductor Manufacturing Co. and regain profitability.
Intel recently disclosed concerning financial details for its foundry unit, revealing an increase in operating losses from $5.2 billion in 2022 to $7 billion in 2023. Analyst Stacy Rasgon from Bernstein expressed pessimism about the situation, remarking, “We likely have several years of substantial headwinds still in front of us.”
The U.S. chipmaker has invested significant sums in efforts to reclaim its status as a top producer of cutting-edge chips, a position now held by Taiwan Semiconductor Manufacturing Co. Despite Intel’s capital investments, including $43.4 billion in construction projects as of December 30, 2023, the company continues to face financial setbacks.
CEO Pat Gelsinger anticipates that operating losses in the contract chip-making business will peak in 2024, with a prospect of breaking even by 2027. This segment represented about 35% of Intel’s total net revenue in 2023. Intel aims to improve the foundry business’s gross margin to 40% by 2030, but this target still falls below the 53% margin reported by TSMC in the fourth quarter of 2023.
Moreover, TSMC’s revenue for the final quarter of 2023 reached T$625.5 billion ($19.52 billion), significantly surpassing the $18.9 billion in sales generated by Intel’s foundry unit in the same year. Research firm Counterpoint’s senior analyst Parv Sharma highlighted the challenges faced by Intel, noting that established competitors possess geographic advantages, valuable talent, and strong relationships with top-tier customers, inspiring doubts in investors about Intel’s foundry prospects.
In response to these challenges, Intel has outlined plans to invest $100 billion in facilities across four U.S. states, partly supported by the U.S. Chips Act. Despite these efforts, Intel’s path to regaining market competitiveness and profitability remains uncertain, with the company likely to face continued hurdles in the years ahead.